Appeal details
Counselvise Citation
[2011] 119 COUNSELVISE.COM (IT) 6641 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-05-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
29-04-2011
Assessment Year
2005-2006
Appeal Filed On
17-02-2010
Judgement Text
, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () , , , !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I AKBER BASHA, AM] # # # # / I.T.A NO. 366/KOL/2010 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR: 2005-06 DEPUTY COMMISSIONER OF INCOME-TAX -VS- M/S. WIRES & FABRICS (SA) LTD. CIRCLE-3, KOLKATA. (PAN-AAACW 2586 L) ()* /APPELLANT ) (+,)*/ RESPONDENT ) FOR THE APPELLANT: SHRI S. SINHA FOR THE RESPONDENT: SHRI R. SALARPURIA ! / ORDER PER SHRI MAHAVIR SINGH/ : THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A)-I, KOLKATA IN APPEAL NO. 354/CIT(A)-I/C-3/07-08 DATED 26.11.2009. THE ASSESS MENT WAS FRAMED BY ACIT, CIRCLE-3, KOLKATA, U/S. 143(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2005-06 VIDE HIS ORDER DATED 06.12. 2007. 2. THIS APPEAL BY REVENUE IS BARRED BY LIMITATION B Y 4 DAYS AND REVENUE HAS FILED CONDONATION PETITION STATING THE REASON THAT ON 13 TH AND 14 TH FEBRUARY, 2010 BEING HOLIDAY AND THEREAFTER FROM 15TH TO 17 TH FEBRUARY, 2010 ADDL. CIT, RANGE-III WAS ON TRAININ G. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT OBJECTED TO THE CO NDONATION OF DELAY. GOING BY THE CONCESSION OF THE LD. COUNSEL FOR THE ASSESSEE AND REASONS STA TED ABOVE, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT PAYMENT OF CORPORATE GUARANTEE ON ACCOUNT OF LOAN TAKEN BY ITS ERSTWHILE SUBSIDIARY COMPANY. FOR THIS, REVENU E HAS RAISED THE FOLLOWING GROUND NOS.1 TO 6. 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE SUM OF RS. 1.60 CRORES BEING CORPORATE GUARANTEE AMOUNT IN RESPECT OF THE LOAN TAKEN BY ITS SUBSIDIARY COMPANY WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITSELF HAD DISALLOWED THIS AMOUNT IN I TS REVISED RETURN FILED U/S. 139(5) OF THE I.T. ACT, 1961. 2. WITHOUT PREJUDICE TO GROUND NO 1, ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE SUM OF RS. 1.60 CRORES WITHOUT CONSIDERING THE RATIO OF THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF CIT 2 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 VS. M/S. AMALGAMATIONS (P) LTD. [226 ITR 188] IN WH ICH IT IS HELD THAT THE EXPENDITURE INCURRED BY THE PARENT COMPANY FOR GUARANTEEING LOA N TAKEN BY ITS SUBSIDIARY COMPANY IS NOT AN ALLOWABLE DEDUCTION. 3. WITHOUT PREJUDICE TO THE GROUND NOS. 1 & 2, ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETI NG THE SUM OF RS. 1.60 CRORES WHICH WAS INCURRED BY THE ASSESSEE COMPANY FOR GUARANTEEI NG THE LOAN TAKEN BY ITS SUBSIDIARY COMPANY, THE BUSINESS OF WHICH WAS WHOLLY SEPARATE AND DISTINCT FROM THE BUSINESS OF THE ASSESSEE COMPANY, IN DISOBEDIENCE OF THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. AMALGAMAT IONS (P) LTD. (226 ITR 188). 4. WITHOUT PREJUDICE TO THE GROUND NOS. 1, 2 & 3, O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DEL ETING THE SAID SUM OF RS. 1.60 CRORES AND THEREBY APPROVING THE ASSESSEES CLAIM OF BAD D EBT MADE IN THE ORIGINAL RETURN OF INCOME WHEREAS THE PROVISIONS OF SECTION 36(2) READ WITH SECTION 36(1)(VII) OF THE I. T. ACT, 1961 WERE NOT ATTRACTED AS ONE OF THE TWIN CON DITIONS I.E. THE INCOME ARISING FROM GUARANTEEING THE LOAN TAKEN BY THE SUBSIDIARY COMPA NY WAS INCLUDED IN THE ASSESSEES TOTAL INCOME, IS NOT SATISFIED BECAUSE NO INCOME WH ATSOEVER EVER AROSE FROM THE TRANSACTION OF GUARANTEEING THE LOAN. 5. WITHOUT PREJUDICE TO THE GROUND NOS. 1, 2, 3 & 4 , ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS EXCEEDED IN HIS JURISDICTION BY DELETING THE SAID SUM OF RS. 1.60 CRORES AND THEREBY DIRECTING THE TO TAL INCOME BEING ASSESSED AT A FIGURE LOWER BY AN EQUAL AMOUNT THAN THE FIGURE OF TOTAL I NCOME AS PER THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE U/S. 139(5) OF THE I.T . ACT, 1961. 6. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT (APPEALS) HAS ERRED BY NOT GIVING A POSITIVE FINDING ON THE ASSES SEES FIRST GROUND OF APPEAL REGARDING THE VALIDITY OF THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE U/S. 139(5) OF THE I. T. ACT, 1961. 4. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR 2005-06 ON 30.10.2005 AND THE SAME WAS PROCESSED U/S. 143(1) OF THE ACT ON 3.8.2006. SUBSEQUENTLY, THE RETURN WAS P ICKED UP SCRUTINY AND NOTICES U/S. 143(2) ALONG WITH 142(1) OF THE ACT WAS ISSUED. THE ASSES SEE PRODUCED BOOKS OF ACCOUNT AND OTHER DETAILS. THE ASSESSEE SUBMITTED REVISED RETURN ON 21.12.2006 TO ADD THE WRITE BACK SUM OF RS.1.06 CR. AGAINST CORPORATE GUARANTEE GIVEN ON BE HALF OF SUBSIDIARY COMPANY AS NOT RECOVERABLE. IN THE ORIGINAL RETURN OF INCOME, THE ASSESSEE HAS CLAIMED THIS AMOUNT AS SUNDRY BALANCES WRITTEN OFF BUT IN THE REVISED RETURN OF I NCOME, THE ASSESSEE HAS INCLUDED THIS AMOUNT IN THE COMPUTATION OF INCOME BY MENTIONING AS AMOUNT PAID TO FINANCIAL INSTITUTIONS AND DEBITED TO PROFIT & LOSS ACCOUNT UNDER THE HEAD SU NDRY BALANCE WRITTEN OFF (NET) AGAINST CORPORATE GUARANTEE GIVEN ON BEHALF OF ERSTWHILE SU BSIDIARY CO. AS THE SAME IS NOT RECOVERABLE, HENCE WRITTEN OFF BEING BUSINESS EXPEN DITURE BUT TO AVOID PENALTY U/S. 271(1)(C) ADDED THE SAME UNDER PROTEST. THE ASSESSING OFFICER NOTED THAT THERE WAS NO DISC OVERY OF ANY OMISSION AS THE ASSESSEE HAD PLACED CORPORATE GUARA NTEE ON BEHALF OF M/S. KHAITAN PAPER MACHINE (IN SHORT KPM) LONG TIME BACK AND WHEN KPM BECAME A DEFAULTER, ICICI BANK ISSUED 3 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 NOTICE TO THE ASSESSEE AND DURING ASSESSMENT YEAR 2 004-05, IT HAD COMPLIED WITH SUCH NOTICE BY PAYING A SUM OF RS.60 LAKH TO THE BANK BY TAKING IN TEREST BEARING SUM FROM INDIAN OVERSEAS BANK LTD. THE A.O. FURTHER NOTED THAT FOR GIVING C ORPORATE GUARANTEE, ASSESSEE WAS NOT IN THIS BUSINESS, CONSEQUENTLY, INTEREST ON CAPITAL BORROWE D FOR THIS PURPOSE WAS DISALLOWED U/S. 36(1)(III) OF THE ACT IN ASSESSMENT YEAR 2004-05. ACCORDING TO ASSESSING OFFICER, ASSESSEE BECAME AWARE AND REALIZED THAT WRITING OFF THIS PRI NCIPAL OF RS.1.60 CR. WILL NOT BE ALLOWED. ACCORDINGLY, HE REVISED THE RETURN AND REPLIED VIDE LETTER DATED 28.9.2007 STATING THAT . AS PER DECISIONS OF THE VARIOUS COURTS, WE HAVE RIGHTL Y SUBMITTED THE REVISED RETURN. IN VIEW OF DIFFERENCE OF OPINION REGARDING THE ALLOWABILITY OF THE AMOUNT WRITTEN OFF BEING PAYMENT MADE TO THE FINANCIAL INSTITUTIONS FOR THE CORPORATE GUA RANTEE GIVEN BY US FOR AND ON BEHALF OF THE ERSTWHILE SUBSIDIARY COMPANY, M/S. KHAITAN PAPER MA CHINE LIMITED. AS THE GUARANTEE GIVEN BY US CANNOT BE REVOKED WITHOUT CONSENT OF THE FINA NCIAL INSTITUTIONS AND IS A CONTINUING ONE. BUT THE ASSESSING OFFICER NOT TREATED THE EXPLANATI ON PROPER. ACCORDINGLY, ASSESSING OFFICER ADDED BACK THIS TO THE INCOME OF THE ASSESSEE AT RS .1.06 CR. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: FURTHER, A SUM OF RS. L CRORE WAS PAID TO THE IDBI BANK WHO IS ALSO LEADING FINANCIAL INSTITUTIONS TO THE APPELLANT AND FURTHER TO AVOID THE CLOSURE OF THE COMPANY BUSINESS, REDUCTION OF THE LIMIT OF THE APPELLANT AND RESTRIC TION FOR FURTHER SANCTION OF THE LIMIT AND INCREASE THE INTEREST RATE AND /OR BLACKLISTING OF THE COMPANY. HENCE, THE COMPANY PAYMENT WAS MADE FOR THE LD. A/R EMPHASIZES PURELY FOR COMMERCIAL EXPEDIENCY AND WAS THEREFORE FULLY ALLOWABLE AS A BUSINESS DEDUCTI ON. THE ARGUMENT OF THE APPELLANT IN THIS YEAR IS SIMIL AR TO THAT IN THE PREVIOUS FINANCIAL YEAR I.E. ASSESSMENT YEAR 2004-05 WHERE A SIMILAR A DDITION WAS MADE BY THE ASSESSING OFFICER AND WAS SUBSEQUENTLY DELETED BY THE CIT (A) - I, KOLKATA. AS MENTIONED EARLIER, NO SECOND APPEAL HAS BEEN PREFERRED BY THE DEPARTME NT AGAINST THE SAID ORDER AND, THEREFORE, IT CAN BE ASSUMED THAT THE ADJUDICATION CARRIED OUT BY MY PREDECESSOR IN OFFICE WAS DULY ACCEPTED BY THE A.O. NO NEW FACTS H AVE BEEN BROUGHT FORWARD OR ENUCLEATED BY THE A.O. IN THIS YEAR, AND HE HAS REP EATED WHAT WAS SAID IN THE PREVIOUS ASSESSMENT YEAR. ALTHOUGH THE RULE OF RES JUDICATA DOES NOT APPLY TO PROCEEDINGS UNDER THE INCOME TAX ACT, NEVERTHELESS UNLESS THERE IS A CHANGE IN CIRCUMSTANCE, OR FACTS ETC THE OF MY PREDECESSOR HOLDS GOODS. FURTHER, AS WAS HELD BY THE HONBLE SUPREME COURT IN RADHASWAMI SATSANG TRUST V. CIT 193 ITR 321 THE AUTHORITIES CANNOT EVER OVER FROM A PREVIOUS DECISION AT THEIR SWEET WILL. FURTHER, THE RATIO OF THE JUDGMENT BY THE HONBLE S UPREME COURT WAS FOLLOWED BY THE HONBLE HIGH COURT OF CALCUTTA IN SRI HANUMAN SUGAR & INDUSTRIES LTD. V. CIT (2004) 136 TAXMANN 617. THE COURT HELD IN PARA 27 THAT TH E PRINCIPLE OF RES JUDICATA DOES NOT APPLY IN INCOME-TAX MATTERS, BUT FOR COMING TO SEPARATE CONCLUSION IN TWO DIFFERENT YEARS, THERE MUST BE SEPARATE FACTS LEADING TO SUCH DIFFERENT CONCLUSIONS. ON IDENTICAL FACTS, SEPARATE CONCLUSIONS BY THE REVENUE AUTHORIT IES ARE NOT DESIRABLE. IN THE ABSENCE OF MATERIAL CIRCUMSTANCES OR REASONS FOR SUCH DEPARTURE I AM OF THE OPINION THAT THE CLAIM OF THE APPELLANT FOR TREATIN G THE PAYMENT MADE TO THE FINANCIAL INSTITUTION, AS A RESULT OF INVOKING CORPORATE GUAR ANTEE, IS A LEGITIMATE BUSINESS EXPENDITURE NECESSITATED OUT OF NORMAL BUSINESS EXP EDIENCY. 4 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 ACCORDINGLY, THIS GROUND OF THE APPELLANT SUCCEEDS. AGGRIEVED, AGAINST THE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. FIRST OF ALL WE HAVE TO SEE THE FACTS OF THE CASE T HAT WHAT IS NATURE OF LIABILITY RS1.60 CR. PAID TO THESE TWO FINANCIAL INSTITUTIONS I.E. ICICI BANK AN D IDBI DURING F.Y. 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06 AND DECLARED THIS AMOUNT AS IRRECOVERABLE FROM ITS ERSTWHILE SUBSIDIARY KPM. THE ASSESSEE HAS MADE THIS PAYMENT OF RS1 CR. TO IDBI ON ACCOUNT OF ERSTWHILE SUBSIDIARY KPL AS IT HAD DEFAULTED IN MAK ING PAYMENT OF LOAN TAKEN FROM THE FINANCIAL INSTITUTION AND FINANCIAL INSTITUTION HAS INITIATED PROCEEDINGS AGAINST ASSESSEE FOR RECOVERY OF DUES. THE ASSESSEE MADE A CLAIM THAT, IT BY WAY OF SETTLEMENT MADE PAYMENT OF RS.60 LAKH AND RS. 1 CR. TO ICICI BANK AND IDBI RES PECTIVELY AGAINST THE CLAIM MADE ON TERMS AND CONDITIONS OF GUARANTEE, WHICH IS NOT RECOVERAB LE, AND IS A CONTINUING ONE. THE ASSESSEE TO AVOID CLOSURE OF BUSINESS, REDUCTION OF LIMIT AVAIL ED FROM THE IDBI AND RESTRICTIONS PUT FORTH ON SANCTIONED LIMIT AND INCREASE IN INTEREST RATES MAD E THIS PAYMENT. SIMILAR ARE THE REASONS FOR MAKING PAYMENTS TO ICICI BANK. IN VIEW OF THESE REA SONS, THIS BEING A COMMERCIAL EXPEDIENCY, IT CLAIMED THESE PAYMENTS AS BUSINESS DEDUCTION. TH E ASSESSEES ANNUAL REPORT CLEARLY STATES THAT IT HAD GIVEN A CORPORATE GUARANTEE TO TWO FINANCIAL INSTITUTIONS IN THE LOAN GRANTED BY THEM TO KPL, A SUBSIDIARY COMPANY OF THE ASSESSEE AT THE TI ME OF EXECUTING THE CORPORATE GUARANTEE. VIDE NOTE NO. 8 OF NOTES ON ACCOUNTS OF THE ASSESSE E COMPANY FOR THE FY 2004-05, WHICH CLEARLY REVEALED THAT THIS IS A CONTINUING GUARANTE E AND RELEVANT NOTE NO. 8 READS AS UNDER: 8. THE GUARANTEE GIVEN BY THE COMPANY ON BEHALF O ITS ERSTWHILE SUBSIDIARY TO FINANCIAL INSTITUTIONS AS STATED BY THE MANAGEMENT IN THE NORMAL COURSE OF ITS BUSINESS HAS BEEN SETTLED WITH THE FINANCIAL INSTITUTIONS ON PAYMENT OF RS.1,60,00,000 AND THE SAME HAS BEEN DEBITED TO PROFIT AND LOSS ACCOUNT UN DER THE HEAD SUNDRY BALANCE WRITTEN OFF. 6. LD. COUNSEL FOR THE ASSESSEE BEFORE US STATED TH AT THIS BEING A CONTINUING GUARANTEE AND COULD NOT BE REVOKED WITHOUT THE CONSENT OF THE PAR TY IN WHOSE FAVOUR THE GUARANTEE IS GIVEN, IT IS THE LIABILITY OF THE ASSESSEE AND ADMITTEDLY THE ASSESSEE MADE PAYMENT BY WAY OF SETTLEMENT, WHICH IS CLEARLY AVAILABLE IN THE LETTER DATED 28 TH MARCH, 2005 AND 30 TH MARCH, 2005 WHEREIN IDBI HAS CLEARLY RELEASED THE CORPORATE GUARANTEE I N RESPECT OF KPM OF RS.1 CR. AND RS.60 LAKH BY ICICI. THE RELEVANT PAPERS ARE ENCLOSED AT PAGE S 35 AND 36 OF THE ASSESSEES PAPER BOOK. THE LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THA T IN IMMEDIATE PRECEDING YEAR I.E. ASSESSMENT YEAR 2004-05, THE CIT(A) HAS ALLOWED EXA CTLY IDENTICAL CLAIM OF THE ASSESSEE IN RESPECT OF CORPORATE GUARANTEE MONEY PAID TO ICICI OF RS.60 LAKH, THE CIT(A) IN ASSESSMENT 5 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 YEAR 2004-05 IN APPEAL NO. 465/CIT(A)-1/CIR-3/07-08 DATED 28.5.2009 IN ASSESSEES CASE HAS ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARA 2.3 AS UNDER: 2.3 I HAVE GONE THROUGH THE SUBMISSIONS OF THE AS SESSEE AND THE OBSERVATIONS OF THE ASSESSING OFFICER. UNDISPUTED FACTS ORE THAT WHEN T HE CORPORATE GUARANTEE WAS MADE, THE COMPANY WAS A SUBSIDIARY OF THE APPELLANT AND ONLY LATER THE SAID COMPANY BECAME PUBLIC. THE APPELLANT DID INFORM THE BANK OF THE CHANGED SITUATION BUT ICLCI BANK DID NOT DISCHARGE THE APPELLANT. IT WENT AHEAD WITH THE WINDING UP PETITION TO RECOVER THE DUES OF THE ONETIME SUBSIDIARY FROM THE APPELLANT. THE APPELLANT PAID AN AMOUNT OF RS.60 LACS TO THE BANK AS A FULL AND FINA L PAYMENT TO ITS DISCHARGE. SINCE THE PAYMENTS WERE MODE BECAUSE OF CORPORATE GUARANTEE G IVEN IN RESPECT OF A ONE TIME SUBSIDIARY, THE AMOUNTS WERE SHOWN IN THE BOOKS AS GIVEN TO THE SAID COMPANY. IN FACT IT IS PAID TO THE ICICI BANK DIRECTLY. THE REA SON FOR ENTERING INTO THE SETTLEMENT WITH THE BANK HAS BEEN GIVEN BY THE APPELLANT. THE ASSESSEE COULD FACE RECOVERY FOR FILL AMOUNT OF RS.8.10 (APPROS) CRORE, BLACKLISTING WITHDRAWAL/REDUCTION OF LIMITS GRANTED BY THE BANK AND FINANCIAL INSTITUTIONS OR H ARDER TERMS FOR LIMITS ALLOWED, EFFECTING THE BUSINESS OF THE ASSESSEE. THE CREDIT RATINGS OF THE ASSESSEE COULD GET AFFECTED LEADING TO INCREASE OF OPERATIONAL COSTS. THEREFORE, THE PRINCIPAL PAYMENTS OF RS.60 LACS, IN MY OPINION WERE MADE TO ENSURE THE S MOOTH FUNCTIONING OF THE BUSINESS AND TO PROTECT BUSINESS INTERESTS. HENCE THE TRANSA CTIONS BETWEEN ICICI BANK & THE APPELLANT WILL HAVE TO HELD AS FOR BUSINESS PURPOSE S. THE EXPENSES ON ACCOUNT OF INTEREST ON THIS PAYMENT ARE THEREFORE HELD AS MADE FOR BUSINESS PURPOSES, THE DISALLOWANCE OF RS.2,36,250/- MADE BY ASSESSING OFF ICER IS DELETED.. LD. COUNSEL FURTHER STATED THAT NO FURTHER APPEAL A GAINST ORDER OF CIT(A) WAS FILED BY REVENUE BEFORE ITAT AND THIS ORDER HAD BECOME FINAL. HE STA TED THAT CONCEPT OF CONSISTENCY BE FOLLOWED. LD. COUNSEL FURTHER STATED THAT KPM HAVE GONE TO BIFR AND ITS ENTIRE CAPITAL HAS BEEN ERODED AND NOTHING IS THERE TO PAY THE CREDITO RS. AN ORDER FOR WINDING UP HAS BEEN PASSED BY BIFR AND IN LIEU OF THAT THE ASSESSEE HAS DECIDE D TO WRITE OFF THE ABOVE SUM OF RS.1.6 CR. HE ALSO CITED THE DECISION OF HONBLE APEX COURT IN TH E CASE OF CIT VS. AMALGAMATION PVT. LTD. (1997) 226 ITR 188 (SC) AND ALSO OF HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. MC. DOWELL & CO. LTD. (2006) 286 ITR 203 (KAR). 7. ON THE OTHER HAND, THE LD. CIT DR SHRI S. SINHA ARGUED THAT THE CIT(A) HAS NOT GONE INTO THE MERITS OF THE CASE RATHER HE HAS DECIDED T HE ISSUE RELYING ON THE ORDER OF CIT(A) FOR THE AY 2004-05, AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. HE STATED THAT THE RULE OF RES JUDICATA WILL NOT APPLY TO THE TAX PROCEEDINGS AND DESPITE THIS FACT THE CIT(A) IN THIS YEAR HAS FOLLOWED THE ORDER OF EARLIER YEAR. HE ARGUED THAT AS THE FACTS ARE NOT DISCUSSED BY THE CIT(A), THE ISSUE BE SET ASIDE TO THE FILE OF THE CIT(A) FO R FRESH ADJUDICATION ON MERITS. HE ALSO ARGUED THAT THERE IS NO CONDITION LAID DOWN FOR MAKING THE PAYMENT BY THE ASSESSEE COMPANY IN THE TERMS AND CONDITIONS AND WHAT WAS THE PURPOSE FOR M AKING THIS PAYMENT, THIS HAS NOT BEEN ADJUDICATED BY THE LOWER AUTHORITIES. LD. CIT DR AR GUED THAT THE CASE LAW OF HONBLE APEX COURT IN THE CASE OF AMALGAMATION PVT. LTD. (SUPRA) IS IN FAVOUR OF THE REVENUE AND NOT THE 6 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 ASSESSEE. AS FAR AS THE ISSUE OF REVISED RETURN OF INCOME, THE LD. CIT DR HAS NOT ARGUED ANYTHING IN RESPECT TO THIS. 8. WE FIND THAT THIS IS A FACT THAT NONE OF THE AUT HORITIES HAVE DOUBTED THE GENUINENESS OF PAYMENT OF RS.1.6 CR. TO ICICI AND IDBI, RATHER THE LOWER AUTHORITIES HAVE ACCEPTED THAT THIS IS A GENUINE PAYMENT. AS REGARDS TO THE FACT THAT, AS SESSEE ENTERED INTO CORPORATE GUARANTEE WITH THESE TWO FINANCIAL INSTITUTIONS FOR THE LOAN GRANT ED BY THEM TO KPM IS ALSO A FACT. THIS GUARANTEE IS ALSO A CONTINUING GUARANTEE AND COULD NOT BE REVOKED WITHOUT THE CONSENT OF THE PARTY IN WHOSE FAVOUR THE GUARANTEE IS GIVEN AS PER TERMS AND CONDITIONS OF THE GUARANTEE. THE ASSESSEE DURING THE PENDENCY OF GUARANTEE, AS A PRE CAUTIONARY MEASURE HAD INTIMATED TO THE FINANCIAL INSTITUTIONS THAT THE CORPORATE GUARANTEE GIVEN BY IT IS NO MORE EFFECTIVE SINCE KPM IS CEASED TO BE A SUBSIDIARY OF ASSESSEE AND IT HAD NO CONTROL OVER THE MANAGEMENT AND AFFAIRS OF THAT COMPANY, BUT FINANCIAL INSTITUTIONS INITIATED LEGAL PROCEEDINGS AGAINST ASSESSEE DURING FY 2003-04 AND ULTIMATELY IT HAD SETTLED BY PAYING A S UM OF RS.60 LAKH IN FINANCIAL YEAR 2003-04, WHICH WAS SUBJECT MATTER OF APPEAL BEFORE CIT(A) IN AY 2004-05 AND ULTIMATELY CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, WHICH HAS BECOME FINAL AS NO APPEAL AGAINST THE ORDER OF CIT(A) WAS FILED BY THE REVENUE IN HIGHER FORUMS. THE ASSESSEE SETTLED THE AMOUNT WITH IDBI AND ICICI FOR NON-PAYMENT OF OUTSTANDING DUES OF KP M AS IT WAS FACING A LOT OF PROBLEMS WITH IDBI. WE FIND THAT HONBLE APEX COURT IN THE CASE OF AMALGAMATION PVT. LTD. (SUPRA), WHEREIN IT IS HELD THAT ONE COMPANY SSM, WAS ORIGIN ALLY A SUBSIDIARY OF A, WHICH WAS A SUBSIDIARY OF THE ASSESSEE-COMPANY AND ON AND FROM FEBRUARY 1, 1954, THE ASSESSEE-COMPANY PURCHASED ALL THE SHARES OF SSM FROM A AND SSM THUS BECAME THE DIRECT SUBSIDIARY OF THE ASSESSEE-COMPANY. HONBLE COURT FURTHER NOTED THAT SSM HAD BORROWED MONIES FROM A BANK AND THE ASSESSEE-COMPANY HAD GUARANTEED THE LOAN TO THE SAID COMPANY BY THE BANK AND SSM WENT INTO LIQUIDATION SOME TIME IN 1955. HONBLE AP EX COURT FURTHER NOTED THAT WHEN SSM WENT INTO LIQUIDATION, THE ASSESSEE-COMPANY, AS GUA RANTOR, WAS REQUIRED TO CLEAR THOSE OVERDRAFTS IN ACCORDANCE WITH THE TERMS OF THE GUAR ANTEE AND AFTER ADJUSTING THE AMOUNT RECOVERED FROM THE LIQUIDATORS, THE SUM DUE TO THE ASSESSEE-COMPANY FROM THE LIQUIDATED COMPANY ON ACCOUNT OF THE SAID OVERDRAFT WAS RS. 9, 08,764. IT WAS FURTHER OBSERVED BY HONBLE APEX COURT THAT THE ASSESSEE-COMPANY CLAIMED DEDUCT ION OF THIS AMOUNT AS A LOSS WHICH AROSE IN THE COURSE OF AND INCIDENTAL TO ITS BUSINESS IN THE ASSESSMENT FOR THE YEAR 1958-59 RELYING ON ITS MEMORANDUM OF ASSOCIATION WHICH AUTHORISED IT T O BE THE GUARANTOR FOR THE LOANS AND THERE WERE RECEIPTS BY THE ASSESSEE-COMPANY IN THE COURSE OF THE LIQUIDATION OF SSM IN LATER YEARS. HONBLE APEX COURT FURTHER NOTED THE FACTS THAT THE TOTAL AMOUNT RECEIVED CAME TO RS. 4,85,508.28 SPREAD OVER THE RELEVANT ACCOUNTING YEA RS FOR THE ASSESSMENT YEARS 1959-60 TO 7 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 1962-63 AND ITO HELD THAT THE LOSS IN QUESTION DID NOT ARISE DURING THE COURSE OF OR INCIDENTAL TO THE BUSINESS OF THE ASSESSEE-COMPANY AND IN HIS VIE W, IT WAS AT BEST A CAPITAL LOSS AND HE MAKING ASSESSMENTS FOR THE YEARS 1959-60 TO 1962-63 , TREATED THE RECEIPTS FROM THE LIQUIDATOR AS INCOME AS A PROTECTIVE MEASURE. THE TRIBUNAL HEL D THAT THE ASSESSEE-COMPANY HAD GUARANTEED THE LOAN IN THE COURSE OF CARRYING ON IT S OWN BUSINESS AND THE LOSS WAS CLEARLY ADMISSIBLE AS A DEDUCTION BUT SINCE THE ASSESSEE-CO MPANY HAD RECEIVED THE LAST OF THE PAYMENTS FROM THE LIQUIDATOR IN THE PREVIOUS YEAR RELEVANT T O THE ASSESSMENT YEAR 1962-63 IT WAS HELD THAT THE BALANCE OF RS. 4,23,256 REMAINING UNRECOVERABLE REPRESENTED THE REAL BUSINESS LOSS ALLOWABLE FOR THE ASSESSMENT YEAR 1962-63. THIS WAS UPHELD BY THE HIGH COURT. HONBLE APEX COURT HELD THAT THE ASSESSEE-COMPANY HAD INCURRED T HE LOSS IN CARRYING ON ITS OWN BUSINESS WHICH INCLUDED FURNISHING GUARANTEES TO DEBTS BORRO WED BY ITS SUBSIDIARY COMPANIES AND ASSESSEE-COMPANY COULD HAVE ASCERTAINED WHETHER THE RE WAS LOSS IN THE TRANSACTION OF GUARANTEE ONLY AT THE STAGE OF FINAL PAYMENT BY THE LIQUIDATO RS, WHICH WAS RECEIVED IN THE RELEVANT PREVIOUS YEAR FOR THE ASSESSMENT YEAR 1962-63 AND I T WAS ALLOWABLE IN THAT YEAR. IN THE PRESENT CASE ALSO THE FACTS ARE EXACTLY IDENTICAL, WHEREIN THE COMPANY HAS BEEN AUTHORISED TO STAND GUARANTEE BY SPECIAL RESOLUTION FOR KPM AS STATED B Y LD. COUNSEL FOR THE ASSESSEE, WHILE MAKING STATEMENT AT BAR. IT IS ALSO A FACT THAT TH E ASSESSEE HAS MADE THIS PAYMENT TO AVOID CLOSURE OR REDUCTION OF LIMITS AVAILED FROM IDBI AN D RESTRICTION OF FURTHER SANCTION OF LIMITS. THERE IS ALSO POSSIBILITY OF INCREASE IN INTEREST R ATES AND/OR BLACKLISTING OF THE COMPANY BY THE FINANCIAL INSTITUTIONS. WE ARE OF THE VIEW THAT TH IS PAYMENT WAS MADE FOR COMMERCIAL EXPEDIENCY AND HENCE, ALLOWABLE. 9. EVEN TAKING A CONSISTENT VIEW, AS THE REVENUE HA S NOT FILED ANY APPEAL AGAINST THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 2004-05, WHICH HAS BE COME FINAL AND BINDING ON THE AO IN VIEW OF FACT THAT THE ISSUE IS EXACTLY IDENTICAL ON THE FACTS. THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED IN VIEW OF THE FACT THAT DEDUCTION IS ALLO WED IN THE FIRST YEAR AND REOPENING IS MADE IN SUBSEQUENT YEARS, THE REOPENING IS HELD TO BE BAD R EASON BEING THE VERY FIRST YEAR THE SAME DEDUCTION IS ALLOWED AS CAPITAL RECEIPT. THE AO CAN NOT DISTURB THE RELIEF GRANTED IN INITIAL YEARS ON THE SAME ISSUE IN SUBSEQUENT YEARS. HONBLE GUJ ARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT (1980) 12 3 ITR 669 (GUJ.) WHEREIN IT IS HELD THAT WHETHER THE ITO WAS JUSTIFIED IN REFUSING TO CONTIN UE THE RELIEF OF TAX HOLIDAY GRANTED TO THE ASSESSEE-COMPANY FOR THE ASSESSMENT YEAR 1968-69, IN THE ASSESSMENT YEAR UNDER REFERENCE, THAT IS, 1969-70, WITHOUT DISTURBING THE RELIEF GRANTED FOR THE INITIAL YEAR. HONBLE COURT HELD THAT IT SHOULD BE STATED THAT THERE IS NO PROVISION IN THE SCHEME OF S. 80J SIMILAR TO THE ONE WHICH WE FIND IN THE CASE OF DEVELOPMENT REBATE WHICH COULD BE WITHDRAWN IN SUBSEQUENT YEARS FOR BREACH 8 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 OF CERTAIN CONDITIONS AND NO DOUBT, THE RELIEF OF T AX HOLIDAY UNDER S. 80J CAN BE WITHHELD OR DISCONTINUED PROVIDED THE RELIEF GRANTED IN THE INI TIAL YEAR OF ASSESSMENT IS DISTURBED OR CHANGED ON VALID GROUNDS. FURTHER, HONBLE COURT HELD THAT WITHOUT DISTURBING THE RELIEF GRANTED IN THE INITIAL YEAR, THE ITO CANNOT EXAMINE THE QUESTION A GAIN AND DECIDE TO WITHHOLD OR WITHDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRANTED. ACCORDI NG TO COURT LEARNED ADVOCATE FOR THE REVENUE, INVITED ATTENTION TO CERTAIN OBSERVATIONS MADE BY THIS COURT IN CIT V. SATELLITE ENGINEERING LTD. [1978] 113 ITR 208 (GUJ), WHERE TH E COURT WAS CONCERNED WITH THE QUESTION, WHETHER AN INDUSTRIAL UNDERTAKING WHICH DID NOT SA TISFY THE PRESCRIBED CONDITIONS SO AS TO ENTITLE ITSELF TO THE RELIEF UNDER S. 80J IN THE I NITIAL YEAR CAN SUCCESSFULLY CLAIM THE RELIEF, IF T HE PRESCRIBED CONDITIONS ARE SATISFIED IN THE SUBSEQUE NT YEARS. HONBLE COURT ANSWERED THAT THIS DECISION OF THIS COURT IN SATELLITE ENGINEERING LTD .'S CASE [1978] 113 ITR 208 (GUJ) CAN BE OF ANY ASSISTANCE TO THE CAUSE OF THE REVENUE, BECAUS E THE QUESTION WITH WHICH THIS COURT WAS CONCERNED IN THAT CASE WAS ALTOGETHER A DIFFERENT ONE IN THE CONTEXT IN WHICH THE DIVISION BENCH WAS SPEAKING. HONBLE COURT FINALLY HELD THAT IT SHOULD BE UNDERSTOOD THAT THIS IS SUBJECT TO THE RIGHT OF THE ITO TO ADJUST THE RELIEF BY FIX ING THE QUANTUM HAVING REGARD TO THE RESPECTIVE CAPITAL EMPLOYED IN THE NEW UNDERTAKING IN THE YE AR WITH WHICH HE IS CONCERNED. 10. SIMILARLY, HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. BHILAI ENGINEERING CORPORATION PVT. LTD. (1982) 133 ITR 68 7 (MP) HAS HELD THAT NO FRESH MATERIAL WAS BROUGHT IN IN THE ASSESSMENT PROCEEDINGS FOR THE YE ARS 1974-75 AND 1975-76 TO SHOW THAT THE FINDING REACHED BY THE ITO IN THE ASSESSMENT FOR TH E YEAR 1973-74 THAT THE ASSESSEE HAD INSTALLED NEW PLANT AND MACHINERY AND HAD CONSTRUCT ED A NEW BUILDING WAS IN ANY WAY ERRONEOUS. FURTHER, THE RELIEF UNDER S. 80J COULD B E OBTAINED WHEN NEW PLANT AND MACHINERY WERE ERECTED FOR PRODUCING THE SAME COMMODITY WHICH AN ASSESSEE WAS PRODUCING EARLIER. HONBLE HIGH COURT HELD THAT IT CANNOT, THEREFORE, BE SAID THAT THE ITO IN GRANTING THE RELIEF UNDER S. 80J FOR THE ASSESSMENT YEAR 1973-74 PROCEE DED UPON A WRONG INTERPRETATION OF THE SECTION. HENCE, FOR THE ASSESSMENT YEARS 1974-75 AN D 1975-76, THE DISALLOWANCE OF THE RELIEF UNDER S. 89J TO THE ASSESSEE WAS NOT VALID. FOR THI S, HONBLE HIGH COURT HELD AS UNDER: IT IS CONTENDED BY THE LEARNED COUNSEL FOR THE DEP ARTMENT THAT THE PRINCIPLE OF RES JUDICATA HAS NO APPLICATION TO PROCEEDINGS UNDER TH E I.T. ACT AND THE FINDINGS REACHED FOR ONE PARTICULAR ASSESSMENT YEAR CANNOT BE HELD TO BE BINDING IN THE ASSESSMENT PROCEEDINGS FOR A SUBSEQUENT YEAR. AS A GENERAL RUL E, THERE CAN BE NO DISPUTE WITH THIS PRINCIPLE. BUT THIS GENERAL RULE IS SUBJECT TO THE QUALIFICATION THAT A FINDING REACHED IN THE ASSESSMENT PROCEEDINGS FOR AN EARLIER YEAR WOULD NO T BE REOPENED IN A SUBSEQUENT YEAR IF IT IS NOT ARBITRARY OR PERVERSE, HAS BEEN ARRIVED A T AFTER DUE ENQUIRY AND IF NO FRESH FACTS ARE PLACED IN THE SUBSEQUENT ASSESSMENT YEAR. THIS IS ON THE PRINCIPLE THAT THERE SHOULD BE FINALITY AND CERTAINTY IN ALL LITIGATIONS INCLUD ING LITIGATIONS ARISING OUT OF THE I.T. ACT (SEE BURMAH-SHELL REFINERIES LTD. V. G. B. CHAND [1 976] 61 ITR 493 (BOM) AND CIT V. DALMIA DADRI CEMENT LTD. [1970] 77 ITR 410 (P & H). IN THE INSTANT CASE, NO FRESH 9 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 MATERIAL WAS BROUGHT IN, IN THE ASSESSMENT PROCEEDI NGS FOR THE YEARS 1974-75 AND 1975- 76, TO SHOW THAT THE FINDING REACHED BY THE ITO IN THE ASSESSMENT PROCEEDINGS FOR THE YEAR 1973-74, THAT THE ASSESSEE HAD INSTALLED NEW P LANT AND MACHINERY AND HAD CONSTRUCTED A NEW BUILDING, WAS IN ANY WAY ERRONEOU S. AS EARLIER POINTED OUT BY US, THE ITO, IN GRANTING THE RELIEF FOR THE YEAR 1973-74, H AD RELIED UPON THE DECISION OF THE CALCUTTA HIGH COURT IN INDIAN ALUMINIUM CO.'S CASE [1973] 88 ITR 257. THAT DECISION WAS CONFIRMED IN APPEAL BY THE SUPREME COURT IN CIT V. INDIAN ALUMINIUM CO. LTD. [1977] 108 ITR 367. THE SUPREME COURT IN TEXTILE MA CHINERY CORPN. LTD. V. CIT [1977] 107 ITR 195, HELD THAT THE RELIEF UNDER S. 80J COUL D BE OBTAINED ALSO WHEN NEW PLANT AND MACHINERY WERE ERECTED FOR PRODUCING THE SAME COMMO DITY WHICH THE ASSESSEE WAS PRODUCING EARLIER. IT CANNOT, THEREFORE, BE SAID TH AT THE ITO, IN GRANTING THE RELIEF UNDER S. 80J FOR THE ASSESSMENT YEAR 1973-74, PROCEEDED U PON A WRONG INTERPRETATION OF THE SECTION. ON THESE FACTS AND CIRCUMSTANCES, IT WAS N OT OPEN TO THE ITO, IN DEALING WITH THE ASSESSMENT FOR THE YEARS 1974-75 AND 1975-76, TO RE FUSE TO GRANT THE RELIEF UNDER S. 80J TO THE ASSESSEE. WE ARE INFORMED THAT THE RELIEF UN DER THAT SECTION HAS ALREADY BEEN GRANTED TO THE ASSESSEE FOR THE YEARS 1976-77 AND 1 977-78. FOR THE REASON GIVEN ABOVE, WE ANSWER THE QUESTION AS FOLLOWS: ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE INCOME TAX OFFICER WAS NOT COMPETENT TO DISALLOW THE RELIEF UNDER SECTION 80J FOR THE ASSESSMENT YEARS 1974-75 AND 1975-76. ' 11. IN RESPECT TO THE ISSUE OF REVISED RETURN, THE LD. CIT DR HAS MADE NO ARGUMENTS, BUT WE ARE OF THE VIEW THAT THE PRIMARY REQUIREMENT OF SEC . 139(5) OF THE ACT I.E. DISCOVERY OF OMISSION HAS TO BE MET WITH IN CASE THE ASSESSEE W ANT TO REVISE HIS RETURN OF INCOME APART FROM OTHER CONDITIONS. IN THE PRESENT CASE, THE ASSESSE E WAS NOT SURE RATHER IT WAS DOUBTFUL WHETHER THIS DEDUCTION WILL BE ALLOWED TO THE ASSESSEE OR N OT. AS WE HAVE ALREADY REPRODUCED THE RELEVANT CONTEXT OF THE LETTER OF THE ASSESSEE DATE D 28.9.2007 AND ALSO NOT ATTACHED TO THE COMPUTATION OF INCOME, WHILE FILING REVISED RETURN. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE REVISED RETURN FILED BY THE ASSESSEE IS NO RETURN IN THE EYES OF LAW AND ONLY RETURN ACTED UPON BY AO IS THE VALID RETURN OF INCOME. 12. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, C ASE LAWS OF HONBLE APEX COURT AND HONBLE HIGH COURTS CITED ABOVE, WE ARE OF THE VIEW THAT THE GUARANTEE PAYMENTS MADE BY THE ASSESSEE ARE DEDUCTIBLE AS BUSINESS EXPENDITURE AND CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. WE CONFIRM THE ORDER OF CIT(A) ON THIS I SSUE. 13. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST RELATED TO PAYMENT OF GUARANTEE ON LOAN TAKEN BY SUBSIDIARY COMPANY. FOR THIS, THE REVENUE HAS RAISED THE FOLLO WING GROUND NOS. 7 AND 8: 7. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST OF R S.2,36,250 WHICH RELATED TO THE LOAN TAKEN BY THE ASSESSEE COMPANY FOR PAYMENT OF THE GU ARANTEE AMOUNT OF LOAN TAKEN BY 10 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 ITS SUBSIDIARY COMPANY WITHOUT APPRECIATING THE LEG AL POSITION THAT SUCH PAYMENT OF INTEREST WAS NOT AN ALLOWABLE EXPENDITURE IN THE HA NDS OF THE ASSESSEE COMPANY. 8. WITHOUT PREJUDICE TO GROUND NO 7, ON THE FACTS A ND IN THE CIRCUMSTANCE OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE DIS ALLOWANCE OF INTEREST OF RS.2,36,250 STATING THAT THE DEPARTMENT HAS NOT FILED SECOND AP PEAL ON SIMILAR ISSUE FOR THE EARLIER YEAR WITHOUT APPRECIATING THAT THE DECISION IN THE EARLIER YEAR WAS NOT ACCEPTED ON MERITS AND THE SECOND APPEAL WAS NOT FILED ONLY BEC AUSE THE TAX EFFECT ON THE PARTICULAR ISSUE WAS LESS THAN THE SPECIFIED LIMIT OF RS.2 LAKHS. 14. AT THE OUTSET, IT IS TO BE MENTIONED THAT BOTH THE PARTIES CONCEDED THAT THIS IS CONSEQUENTIAL TO FIRST ISSUE. AS WE HAVE DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY CONFIRMING THE ORDER OF CIT(A), WE D ISMISS THESE GROUNDS OF APPEAL OF THE REVENUE BEING CONSEQUENTIAL IN NATURE. 15. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION OF PRIOR PERIOD EXPENSES. FOR THIS, THE R EVENUE HAS RAISED THE FOLLOWING GROUND NO. 9: 9. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 19,12,790 BEI NG PRIOR PERIOD EXPENSES IN ABSENCE OF ANY SATISFACTORY EXPLANATION / EVIDENCE FILED BY TH E ASSESSEE COMPANY BOTH BEFORE THE LD. CIT (APPEALS) AND THE AO TO ESTABLISH THAT THE SAID PRIOR PERIOD EXPENSES HAD ACTUALLY CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. 16. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM ASSESSMENT ORDER THAT THE AO HAS DISAL LOWED THESE PRIOR PERIOD EXPENSES BY NOTING THAT CLAUSE 13 OF NOTIFICATION NO. 9949 DATE D 25.1.1996 STATES THAT THE PRIOR PERIOD EXPENSES RESERVED ONLY FOR ERRORS AND OMISSIONS AND THIS CANNOT BE CLAIMED AS REGULAR ADJUSTMENTS AS DONE BY THE ASSESSEE. THE AO NOTED FROM PROVISO B 13(E) OF THE NOTIFICATION, WHICH STATES THAT, CHARGE OR CREDIT ARISING ON THE OUTCOME OF A CONTIN GENCY, WHICH AT THE TIME OF OCCURRENCE COULD NOT BE ESTIMATED ACCURATELY SHA LL NOT CONSTITUTE THE CORRECTION OF AN ERROR BUT A CHANGE IN ESTIMATE AND SUCH AN ITEM SHALL NOT BE TREATED AS A PRIOR PERIOD ITEM. ACCORDINGLY, HE NOTED THAT NO ALLOWANCE WAS MADE FO R DISCOUNT REBATE OR COMPENSATION AS CLAIMED BY THE ASSESSEE. THE CIT(A) ALLOWED THE CL AIM OF THE ASSESSEE BY RELYING ON THE ORDER OF CIT(A) IN EARLIER YEARS BY STATING THAT THE LD . A/R OF THE APPELLANT HOWEVER, REPUDIATED THESE ARGUMENTS AND STATED THAT THERE WAS A NET CRE DIT BALANCE OF RS.7,59,576/- UNDER THE HEAD ADJUSTMENT IN RESPECT OF THE EARLIER YEAR. THUS, A TOTAL CREDIT RS.27,09,438/- AND A TOTAL DEBIT RS.19,49,862/- REMAINED. THE A.O. HAD DISALLOWED R S.19,12,769/- OUT OF THE DEBIT EXPENSES, WITHOUT CONSIDERING THE CREDIT BALANCE ON THIS ACCO UNT. HE FURTHER SUBMITTED THAT THE LIABILITY OF THE EXPENDITURE HAD ARISEN AND WAS FINALIZED AND SE TTLED DURING THE YEAR AND WAS ACCOUNTED FOR AS PER THE PREVALENT PRACTICE OF THE APPELLANT. FU RTHER, HE STATED THAT NO SUCH DISALLOWANCE HAD 11 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 BEEN MADE IN THE PAST EXCEPT DURING THE ASSESSMENT YEAR 2004-05 WHICH HAD BEEN ALLOWED BY MY PREDECESSOR IN OFFICE HOLDING THAT SINCE THE EX PENDITURE CRYSTALLIZED DURING THE YEAR THEY HAVE TO BE ALLOWED FOR THIS YEAR. THE REFERENCE TO PRIOR PERIOD EXPENSES IS ONLY BECAUSE THESE ARE RELATABLE TO THE SALES OF EARLIER YEAR. THE ASS ESSEE HAS BEEN FOLLOWING THE METHOD CONSISTENTLY. IN MY OPINION, THERE IS NOTHING INCO RRECT ABOUT THE PROCEDURE BEING FOLLOWED. THE DISALLOWANCE MADE IS THEREFORE DELETED. RELIANCE I S ALSO PLACED ON THE DECISION OF CIT VS. CARBON INDUSTRIES PVT. LTD. (2003) 259 ITR 373 MADR AS. CIT(A) NOTED THAT THE REVENUE HAS NOT MOVED ANY APPEAL AGAINST THIS ORDER OF CIT(A). AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 17. WE FIND THAT THE CLAIM OF THE ASSESSEE IS THE S UM OF RS.19,12,769/- VARIED FROM INCENTIVE AND COMPENSATION TO DISCOUNT ALLOWED AND THIS IS RE GULAR PRACTICE FOLLOWED BY THE ASSESSEE. IT WAS ALSO CLAIMED THAT THE ASSESSEE HAS ACCOUNTED FO R IN THE INCOME A SUM OF RS.7,59,576/- UNDER THIS HEAD AND THE AO HAS ACCEPTED THE SAME AND HE H AS DISALLOWED THE EXPENDITURE SIDE OF SIMILAR NATURE. WE FIND FROM THE ARGUMENTS OF THE ASSESSEE THAT THE LIABILITY OF EXPENDITURE HAD ARISEN AND FINALIZED AND SETTLED DURING THE YEAR WA S ACCOUNTED AS PER THE PRACTICE REGULARLY FOLLOWED. LD. CIT DR RELIED ON THE ORDER OF AO. W E FIND THAT THE EXPLANATION OF THE ASSESSEE THAT THESE EXPENSES HAVE ACTUALLY CRYSTALISED DURIN G THE YEAR UNDER CONSIDERATION AND THIS PRACTICE IS FOLLOWING REGULARLY AND IN EARLIER YEAR NO SUCH DISALLOWANCE WAS MADE BY THE AO EXCEPT IN ASSESSMENT YEAR 2004-05, WHERE CIT(A) HAS DELETED THE DISALLOWANCE AND NO FURTHER APPEAL HAS BEEN FILED BEFORE HIGHER FORUMS. IN VIE W OF THE ABOVE FACTS, WE CONFIRM THE DELETION AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED . 18. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF PAYMENT OF FREIGHT AND FORWARDING CHARG ES FOR NON-DEDUCTION OF TAX AT SOURCE BY INVOKING THE PROVISIONS OF SECTION 194C OF THE ACT. FOR THIS, THE REVENUE HAS RAISED FOLLOWING GROUND NOS. 10 AND 11: 10. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.1,56,022 BEING PAYMENT OF FREIGHT AND FORWARDING CHARGES TO MIS. ROY SHIPPING AGENCY WITHOUT DEDUCTI ON OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194C (3) OF THE I.T. ACT, 196 1. 11. WITHOUT PREJUDICE TO GROUND NO. 10, ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADD ITION OF RS.1,56,022 PAID TO MIS. ROY SHIPPING AGENCY IN ABSENCE OF ANY SATISFACTORY EXPL ANATION / EVIDENCE THAT THE SAID PAYMENT INCLUDED REIMBURSEMENT OF EXPENSES AND THE COMPONENT OF SERVICE CHARGES WAS LESS THAN RS.50,000. 19. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO MADE DISALLOWANCE OF RS.3,73,81 3/- AND OUT OF WHICH THE REVENUE HAS 12 ITA 366/K/201 0 WIRES & FABRICS (SA) LTD. A.Y. 05-06 CHALLENGED ONLY IN RESPECT OF PAYMENT TO M/S. ROY S HIPPING AGENCY AMOUNTING TO RS.1,56,022/-. WE FIND THAT PAYMENTS MADE TO M/S. ROY SHIPPING AGENCY WERE MOSTLY IN THE NATURE OF REIMBURSEMENTS AND THE ASSESSEE TO SUBSTA NTIATE ITS CLAIM, FILED COPIES OF BILLS OF M/S. ROY SHIPPING AGENCY WHICH CLEARLY PROVES THAT THE P AYMENT TO THE EXTENT OF RS.1,16,022/- IS REIMBURSEMENT AND THE BALANCE RS.40,000/- IS TOWARD S FREIGHT AND FORWARDING CHARGES. IN VIEW OF THIS FACT, THAT THE PAYMENT OF RS.40,000/- DURIN G THE YEAR IS TOWARDS FREIGHT AND FORWARDING CHARGES, THIS DOES NOT ATTRACT THE PROVISIONS OF SE CTION 194C(3) OF THE ACT AND ASSESSEE IS NOT LIABLE TO DEDUCT TDS ON THE SAME. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 20. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 21. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.5.2 011 SD/- SD/- , !' , (AKBER BASHA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( -' -' -' -') )) ) DATED 13TH MAY 2011 ./ $01 2 JD.(SR.P.S.) ! 3 +4 5!4&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT DCIT, CIRCLE-3, KOLKATA. 2 +,)* / RESPONDENT M/S. WIRES & FABRICS (SA) LTD., 7, C . R. AVENUE, KOLKATA-72. 3 . $ ( )/ THE CIT(A), KOLKATA 4. 5. $ / CIT KOLKATA 4<= +$ / DR, KOLKATA BENCHES, KOLKATA ,4 +/ TRUE COPY, ! $>/ BY ORDER, 1 /ASSTT. REGISTRAR .
